Published: April 18, 2007 in Knowledge@Wharton
Omar Hamoui could be called a "serial entrepreneur." Immediately out of college, he started his first business, a consulting company that grew to between 20 and 25 people. Then came what he characterizes as the one job he has ever had: a two-year stint working at Sony. After that, Hamoui created a series of startups built around the expanding ecosystem of mobile devices. He launched a company that developed software for cell phones based the Symbian operating system. (Symbian is a U.K.-headquartered supplier of operating systems for so-called "smart phones.") He next started fotochatter, a social network for photo sharing over mobile phones. Hamoui then joined Wharton to pursue his MBA. While he was a first-year student at the school in 2006, he came up with the idea for AdMob, a company that sells advertising for phones' mobile browsers. As he puts it, he "shifted gears, raised money, and decided to leave school." Since then, AdMob has been growing rapidly, and in the space of a year claims to have become the "world's largest mobile advertising marketplace."
How is mobile advertising evolving? How does it differ from conventional web-based advertising? Knowledge@Wharton spoke to Hamoui about these issues, among others, in his San Mateo, Calif., office. An edited version of that conversation follows.
Knowledge@Wharton: Let's start with a basic question: What does AdMob do?
Hamoui: We are a mobile ad network. We allow independent mobile websites to run advertising on their sites. They come to AdMob, drop some simple code into their [web] pages, and then those pages start serving ads. We also allow advertisers to purchase advertising on a self-serve basis. It works very much like Google AdSense or any other kind of self-serve advertising system, except it's for mobile [devices].
Knowledge@Wharton: How is mobile advertising similar to, or different from, web-based advertising?
Hamoui: It's pretty different. The devices are different. Technically, the way you have to integrate advertising into the page is different. All the advertising done on the Internet is syndicated with JavaScript. JavaScript doesn't work on mobile devices so you have to do it a different way from a technical standpoint.
The targeting is [also] very different. If you are an advertiser, you likely care what carrier the person is on, what handset they are using, whether the handset will support Java or [the] Symbian [operating system]; is it Microsoft Windows or is it Blackberry? -- all those things matter to you. Online, none of those things matter.
The web pages themselves are not translatable onto mobile [devices]. You have to have a different landing page. We would love it if we could just find an ad network to fill our inventory with existing online advertising. But we can't, because those ads would link to web pages which wouldn't render on the mobile device in the first place. [The mobile web] is sort of its own silo.
Knowledge@Wharton: How, then, do you get your advertising on all these various platforms with different capabilities?
Hamoui: That's why we exist, because it's hard to do that. So far we've dealt with the most basic type of advertising, which is a text link. Now we've gone into CPM [cost per thousand views] banners as well, which are graphical and are slightly more of a technical challenge.
A lot of the work formatting for the particular devices happens on the publishers' side in our case. They call us, they request a text link and then they figure out how it needs to render for all the different particular devices. We don't have to do that much heavy lifting when it comes to formatting it for those devices.
What's neat about AdMob is that when you create an ad, you just check off a few boxes and say, "I want this ad to run on Nokia [phones] that support polyphonic ring tones on [service provider] O2 in the U.K.," and your ads will only show up on those devices. We do very specific targeting for mobile. So as an advertiser you don't waste your money on devices that can't consume your content, or on somebody who can't make a purchase or do whatever you want them to do because they have the wrong device.
Knowledge@Wharton: So you are doing the negotiation between the various handheld devices and the advertisers?
Hamoui: Yes, sort of. Of course, it's all automated. We have about 1,200 independent publishers who have content on mobile [web sites]. Those sites contact AdMob and say, "Get me an ad. I have a Nokia and it's in Italy. Do you have an ad that would be appropriately targeted for this device?" And then AdMob effectively sends a response that says, "Yes, here's an ad for that user."
Knowledge@Wharton: Just so it's clear: You are targeting the native web browser built into a cell phone, Blackberry or handheld platform? You're not a Java applet or a WAP [Wireless Application Protocol] application. You're [targeting the device's] browser?
Hamoui: Exactly.
Knowledge@Wharton: Historically, the carriers have controlled what happens on cell phones. You are not linked to any carrier. Is that something the carriers are concerned about?
Hamoui: Not for the most part. We've talked to them and they are relatively ambivalent so far. There are a number of ways that it makes sense for us to work with them in the future. But in terms of growing quickly, for us it has been helpful not having to negotiate individual large deals with carriers as a small company....That has been a big bonus for us.
Knowledge@Wharton: The carriers don't feel that things are slipping through their fingers?
Hamoui: I think they feel that way anyway. There's a general consensus among them that "off deck" -- people browsing the web by typing URLs as opposed to visiting the carrier's home page -- is increasing and is unavoidable. I assume we are feeding that perception, but I don't think they think of us as the cause of it. We are just a company that's taking advantage of the state of the world, as it were.
Knowledge@Wharton: The other piece of the equation includes the consumers themselves -- people who have cell phones. Is there a negative reaction from them? Are people a bit put off by having advertising on their cell phones?
Hamoui: That's obviously an important question. I think that it would annoy people if you were sending them stuff, like pushing SMS [text messages] or MMS [multimedia message services] down to them, or something that's intrusive. [Then] it's like, "I'm on my phone and I'm in the middle of a meeting and you send me an SMS." That would be really annoying. But we don't do that.
These are people who are browsing the web on their phone. For the most part, people are accustomed to seeing advertising when they browse the web. It's a normal part of their experience. So, although we don't directly have interaction with the consumers because we're working through the publishers, we've had zero complaints from publishers that their users are upset about the advertising.
In effect, it's just like the web. If there's so much advertising [that] you don't want to use that site anymore, then you just don't use that site anymore. It's not something that you're obligated to do. We haven't experienced anything like that whatsoever. There have been lots of other issues within the company, but user dissatisfaction has not been one of them.
Knowledge@Wharton: What kinds of other issues have you encountered?
Hamoui: There are lots of issues. Some of them involve recruiting enough people, getting engineering up to par, dealing with publishers who are looking at other ways of monetizing their inventory, and dealing with publishers who are on the carrier deck and the carriers tell them, "You can't run advertising." This is just normal stuff that you would deal with as a company. [It's] not that we don't care about user dissatisfaction -- but it just isn't something that we've had to worry about so far.
Knowledge@Wharton: The one case in which web browsing on a cell phone may be different than web browsing on a desktop is that some people's data plans are paid by the byte.
Hamoui: That's true.
Knowledge@Wharton: Are you getting any push-back [from these customers saying,] "I'm paying to have you give me an ad and you're taking the profit off that transaction"?
Hamoui: In that case, that can be an issue. Because our [ads] are text it's been less [of an issue] than, perhaps, the guys who are serving mostly banner [ads]. I did a calculation once and -- even with the most expensive data plan -- it was like one-fiftieth of a penny extra to get the page [with the ad] downloaded.
There have been Internet plans where you pay by the kilobyte as well. We all remember that time. But, at the end of the day, those content providers have to make money from their content or they're going to stop providing it. As a user, if you don't want to download the ad, then you're not obligated to do so. I think the net benefit to them of being able to consume good content on their phone without having to pay for it -- or to pay 1/50th of a cent for it -- probably outweighs the concerns there. But it's a valid point.
Knowledge@Wharton: The auction-based [system] for buying ads through your service sounds similar to Google's approach. What do you see as AdMob's competitive advantage? Couldn't Google implement its technology in your space and dominate this area like it has so many others?
Hamoui: What Google does right now is AdWords for mobile. You can buy mobile ads on their mobile search results already. So, they are already "in the space." What they don't do is syndicate yet -- which is the part of their business called AdSense.
So the next step would be AdSense for mobile. That would be much more directly competitive with what we're doing. And that's really when one has to worry about the fate of AdMob and how it will fare compared to Google. We're obviously building pretty aggressively ahead of that.
It's the same with any company that's competing with a large, multifaceted organization. We are smaller and this is a 100% of our focus, so we can move a lot faster and do a lot of things that they are not going to do. We are doing banners, soon we'll be doing video, we'll be serving ads inside of games and applications, we'll be dealing with things like analytics for mobile publishers, and there are a couple of other interesting things that we will be able to do for the publishers themselves.
The way that they will have to target their advertising is going to be akin to what they've done on the web. They will look at the context and they will be able to contextualize the ads. But, because their existing engine doesn't care about things like the device or any of the other small subtleties that occur in mobile, it is unlikely that they will be able to use their existing infrastructure to do that kind of intelligent targeting.
A user on a BlackBerry is different than a user on a RAZR, and these people are likely to care about -- and click on -- different things. Over time, we've built up a lot of data on that and we're going to be able to use it in some pretty interesting ways. That should provide us with a pretty interesting differentiator. It's not a foregone conclusion that any companies that are big in TV would become big on the Internet. And, I don't think it's a foregone conclusion that big Internet companies will be big on mobile.
Knowledge@Wharton: Why haven't Google's engineers [developed an] AdSense-like [service for] mobile?
Hamoui: They're busy. They have lots of things to do and [that market] is not big enough. It's really hard to move the needle for a company that's bringing in however many billion dollars every year. If you talk to people at Google, like any large company, $100-million problems just aren't that interesting. How are you going to make a big difference in what we're doing today? They've got a lot of different things going on. They'll come, there's no question that it will happen, but Google is a large company now, and it has other fish to fry.
Knowledge@Wharton: You indicated that you have plans to move from text-based ads into richer media -- video and animation. Doesn't this [raise the issue of] platform differences? While it's straight forward [to deliver] video on some cell phones, on others it's impossible.
Hamoui: It's pretty tricky. The good thing is there are people who solve all kinds of problems in mobile that we can work with. Putting videos onto phones is not our specialty. But there are 20 companies that specialize in this. In a lot of those cases, we'll likely partner. Our specialty is getting a lot of people to see it, not figuring out how to do it.
We're open about working with other people when it comes to particular technology issues. We don't want to solve any problems that have already been solved by somebody else. All these companies have the same problem: They do really interesting stuff, but they can't get anybody there to see their stuff. We drive traffic. That's what we do. Anything else outside of that is stuff that we don't really want to do. And if we don't have to, we won't.
Knowledge@Wharton: Could you explain your two levels of partnership? There's a publishing partner and an ad source partner. Is that right?
Hamoui: In the beginning, we had two levels of partnership for publishers. We said, if you work with us exclusively, we will share this amount of revenue and if you work with us non-exclusively, we will share that amount of revenue. That was just too hard to police and deal with, so we just went to one revenue-share policy where there is no provision that you have to work with us exclusively.
Knowledge@Wharton: Who are the publishers that you're working with and how much traffic do you see?
Hamoui: We don't name our publishers, by and large. But we've talked about some of the publishers we're working with on the website. We work with eBay, we work with MTV, and we work with a lot of people you've never heard of probably -- sites like MocoSpace and some small names that have a lot of mobile traffic. We see about 600 million page views every month across all those publishers.
Knowledge@Wharton: Do you see a willingness on the part of advertisers to experiment on the mobile platform or is there a lot of resistance?
Hamoui: There's not much resistance. I think they're all willing to experiment. Advertisers have, thus far, been the easy part. Finding the inventory and getting ads to run on it is harder than getting advertisers to be interested in it.
We have traffic from all over the world. Finding an advertiser who's interested in advertising in South Africa [for example,] is a little bit more difficult. The U.S. advertisers, at least, are pretty open to it.
Knowledge@Wharton: How does the U.S. market for mobile advertising compare with Europe or Asia?
Hamoui: There's a lot more ad money [in the U.S.], but there's a limited supply of places to put the ads.
Knowledge@Wharton: So there's a disconnect between where the advertising is and where the audience is?
Hamoui: Yes. In terms of the whole advertising industry, I think the U.S. is about 50% of the entire worldwide advertising budget. So, 50% of all the money spent on advertising is spent in this country. That's a lot of money. That means inventory in any other place is a lot less valuable. And inventory here is probably overvalued -- or overpriced, at least.
Knowledge@Wharton: What sort of economic models have you seen in terms of what the advertisers are trying to do on the mobile platform?
Hamoui: There are a couple of different things. There's brand advertising, which is mainly posturing to say: "Look, we're a forward-thinking company; we're doing things on a new medium." And, in some cases, it's pretty valuable.
For example, we did a campaign for Adidas for the World Cup. They were driving people in various countries to download backgrounds for their World Cup teams, like Team France or Team Italy. For a small amount of money, [Adidas] drove tens of thousands or hundreds of thousands of downloads of [the background]. And once somebody has that on their phone, they've got the little Adidas logo on the bottom right-hand corner and they're looking at that [every time they] look at their phone. That's a really good return for a brand advertiser in terms of [gaining] mind share.
We have a lot of direct-response advertisers who are trying to get people to sign up for something -- they have a mobile application, they distribute mobile coupons, they have a free mobile gaming service, they have whatever it is they're trying to do. That's been big.
We're starting to see an increase in entertainment companies for tune-in types of activities: "Don't forget this show is on," "Don't forget this movie is coming out" -- that sort of thing.
The obvious thing that we haven't yet seen is the local stuff. The phone is always with you. Eventually you'll know where this person is. So, can't you tell them to come to my Italian restaurant or whatever? We haven't seen a lot of that yet, partly because there's not sufficient volume to [make it] meaningful. You need to have lots of people in lots of places before that matters.
Knowledge@Wharton: Any thoughts on where this market will evolve? What will the future of mobile advertising look like?
Hamoui: I think that it's going to take a lot from what happened on the web, [although] there will be some different nuances. The platform itself is harder to work in, but it provides some very interesting capabilities.
This is the first time there's been a connected device that you can actually associate with a person. With a computer -- my wife uses my computer at home, I use my computer at home, my kids use my computer at home -- it's a communal device. But the phone doesn't work that way. And it's always with you. Usually people sleep with it by their heads, so it's [with you] literally 100% of the time. There will be some unique things that happen.
In terms of size, I don't think anybody doubts that this is going to be a larger market than Internet advertising.
Google's CEO is basically saying the same thing. They consider it a big issue. If you look at just the sheer number of devices, there are 2 billion or 2.5 billion handsets now; there are half a billion PCs. There are a lot of markets where [people] just use [a mobile phone] to connect to the Internet. They don't even have PCs. I believe that it's going to emerge as a pretty significant market.
Knowledge@Wharton: Where do you think AdMob will be in five years?
Hamoui: I have no idea. I don't know where it'll be in five weeks! There are three possible outcomes: We'll either be out of business; we'll be a big, independent company, or somebody will have bought us. Those are the three possibilities.
Knowledge@Wharton: You don't have any way of handicapping those relative to each other?
Hamoui: I don't think we're going to be out of business. I think we're doing okay so far. Maybe that's a little bit boastful, but this doesn't strike me as something that's just going to vanish. There's enough network activity going on. There are enough people who have a stake in it. Once you have several thousand people on either side, there are enough people who are benefiting from it so that it tends to support itself. You lose one, but somebody steps in and takes their place. So, hopefully -- knock on wood -- we'll still be here.
Knowledge@Wharton: What keeps you up at night?
Hamoui: Lots of things. I have a five-month-old daughter. She keeps me up at night.
Knowledge@Wharton: Business issues?
Hamoui: From a business standpoint, it goes back to some of your earlier questions: How is this going to be defensible long-term? When the larger organizations train their guns on [our company], how are we going to compete? The goal is to build a sustainable business that's going to be running independently five years from now.
So, what I worry about is: Is that really going to happen, or are we going to have to take an early or unfavorable exit because we were unable to build sufficient differentiation for ourselves? It remains to be seen if we'll be able to do it, but that's what I spend a lot of my time thinking about.
